I'm Lead Analyst at European Energy Review and consultant to a number of governments & institutional investors, most recently as Senior Research Fellow, Netherlands Institute for International Relations (Clingendael), I was previously Senior Research Fellow at ETH Zurich working on energy and political risk. I started work in the City of London, advising on energy markets and political risk, as Senior Energy Analyst at Datamonitor for leading global utilities, and headed up the Global Issues Desk at Control Risks Group, specializing in political risk, geopolitics and security analysis for multinational companies, governments and institutional investors. I was also seconded to work in Washington, D.C., to enhance CRG's political risk offerings in North America, having previously worked as an energy consultant at Weber Shandwick Worldwide. My initial stomping ground was British Parliament, serving as Policy Director to the largest All Party Parliamentary Group. Contact m.n.hulbert.03@cantab.net

America Will Deeply Regret Its Fixation On Energy Independence

The U.S. energy independence debate is getting very tetchy of late. Seasoned energy experts are trading cheap blows, principally for sitting on opposite sides of the fence. Nobody doubts that U.S. energy output will keep growing, but whether it ever amounts to full ‘independence’ is at best tenuous. More importantly, it spells total disaster for America’s role in the world. No global oil role, forget being a global hyper power. Those days will be gone.

The allure of energy independence is a compelling story to tell. The U.S. can shut up shop, source all its energy from home shores, never having to step foot outside the Americas to get its energy fix. The U.S. will supposedly be able to boast 15 million barrels a day of liquids by 2020 from a raft of shale oil plays, with massive new oil plays feeding in from Canada in the North, inching production up to around 22mb/d. Unconventional resources are expected to explode from Latin America in the South. Brazil, Argentina, Venezuela will all see rapid supply growth, with Mexico having nothing short of a second energy revolution. Boil the numbers down, the Americas sits on 6.4 trillion unconventional barrels vs. 1.2 trillion conventional barrels across the Middle East. The U.S. will not only be the world’s largest single producer of crude; oil will flow from North to South across the America’s, not East to West across the globe. America can declare total energy independence, import dependency (already clipped to 45%) will be banished; the deficit will be fixed. Oil receipts will replenish the Federal Reserve, not OPEC states. Millions of hydrocarbon jobs will be created in the U.S. to boot. American oil, for American consumers, at American (WTI) prices. Whatever’s left over could be the swing supply for the rest of world, dictating how much everyone pays for a barrel of oil. Epic stuff, no doubt.

Whether you believe all these numbers doesn’t really matter. Few U.S. politicians (or analysts) pay much regard to depletion rates, cost uncertainties for viable extraction, local environmental risks, or contrasting production priorities across the Americas, not to mention the small fact that Asian NOCs have been making some of the main investments across North America. The fact that oil and gas only accounts for 1% of U.S. GDP, is also rather conveniently overlooked. Energy independence is already being touted as a self-fulfilling prophecy playing out in real time today, not as a gradual process of increments and change. This not only flies in the face of global hydrocarbon fundamentals that will see OPEC market share become more concentrated than ever over the next decade, (50% or more), it’s already creating serious geopolitical gaps across international energy markets.

That’s deeply problematic, precisely because supply side dynamics are looking more fragile than they have for a very long time. America has not only gone ‘missing in action’ to underwrite global supplies, it’s contributing to the international malaise by putting perceived political interests ahead of global oil stability. This comes in two forms, ‘passive’ and ‘aggressive’ from Washington – both built on the single idea that the U.S. can play a new geopolitical game thanks to energy independence beckoning just around the corner.

Independence: Passive And Active

Passive = Libya, where the U.S. made it abundantly clear to Europe that Tripoli was not considered a vital national security interest for the U.S., despite prices hitting $127/b. Britain and France were left picking up the pieces, with U.S. firepower providing back-up support, rather than frontline artillery. The chances of that happening had the U.S. not struck oil would have been unthinkable in the 2000s. Conversely, aggressive = Iran. The U.S. has decided that chimerical nuclear containment is a higher priority than

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The role of any good government has to be to improve the lot of the citizenry. Going on or maintaining a power trip at the cost of tens of trillions of dollars of deficit is irrational, if it does not improve the lives of Americans. Think about that.

The US is doing all it can to contain China? How – by giving them all our tech, doing nothing about their cyberwar activities and exporting our jobs to China along with the manufacturing of even weapon components?

I know that many of my peers take pride in our country’s global power status. However, knowing that US energy is dependent upon other states is another story. Perhaps it is because we are high school students and generally not as willing to delve much deeper into subjects of political importance other than what we read/discuss in class, but the concept of the US being dependent on anyone is only slightly concerning to many students, seeing as the nation was founded on the value of independence.

It will be interesting to see if citizens are more interested in preserving the reputation of the US as a global power, or the control of our own resources and US independence.

By definition, independence is better than dependence. Of course if the US becomes energy independent, this leaves Europe in a tough spot, needing to fend for itself instead of hiding between the US military might. Is this what all this whining is about, Mr Hulbert?

I think he’s talking less about Europe than China. Basically we’re not going to (long-term) win an arms race with a nation that could feasibly field an army larger than our total population. So we need diplomatic currency. The point is that as buyers, our nation has market power, but even Canada is abandoning its notion of selling exclusively to the U.S. China’s basically purchased everything in Africa and according to this the Europeans will start siding with China rather than the U.S. if China appears more willing to protect their supply lines, moving us to irrelevance. I don’t know how true that is, to Baybick’s point below, since we’ll still be consumers of other goods and therefore at least maintain a reasonable economic voice regardless of where we get our hydrocarbons from in the next few decades.

Basically, will we care if Saudi Arabia becomes more interested in China’s opinion than ours in the near future?

This article misses the most important point: If the US Trade Deficit goes to zero, the finances of the emerging world will collapse. As the dollar strengthens, the price of oil and commmodities will drop. The central banks of the emerging economies will not have to print their own currency to buy the American dollars flowing into their economies. The world will see massive deflation as monetary circulation collapses.

China doesn’t want half of the world. They just want access to buy the raw materials.

If China really wanted to dominate, they would also bear the responsibility of being the world’s policemen.

Sure they have a lot of soldiers, so they could do peacekeeping all through the middle east, but the sheer quantities of pork-fried rice would be seen as an abomination by the locals, whether Hindu, Shiite, Sunni, or Jewish.

They might all form an alliance to expell the invaders, and China would go home as losers.

The only losers when the U.S. becomes energy independent will be fruitcakes with their dreams of world domination, religious fanatics and defense contractors. The winners: the American people currently struggling under the weight of financing Pox Americana, all the men, women and children half way around the globe who will live now because the fruitcakes will have their war wings clipped, and all those young Americans who won’t be coming home in body bags after dying in wars about nothing.